Thursday, August 30, 2007

In light of the European Commission’s Statement of Objection alleging an abuse of dominance by Intel, the Federal Trade Commission should review the company’s strategic conduct against competitor Advanced Micro Devices “which has gone so long unchecked,” according to an August 29 letter sent by the American Antitrust Institute to FTC Chairman Deborah Platt Majoras.

Intel is clearly a monopolist in the microprocessor manufacturing industry, which for practical purposes is a global duopoly, wrote Albert A. Foer, President of the American Antitrust Institute (AAI).

“There seems to be no compelling evidence that this industry is a natural monopoly, so it becomes especially important to be vigilant against strategies by the dominant firm that might eliminate or cripple its only rival’s ability to gain substantial market share as a result of its hard-won and pro-competitive innovations and efficiency,” the letter observed.

“Reason to Worry”

Citing the EC’s complaint (as well as allegations in a private lawsuit brought by Advanced Micro Devices, a settlement in Japan, and an ongoing investigation in Korea), Foer states that there “seems to be substantial reason to worry about Intel’s rebate policies, in particular, which appear to be fashioned for the purpose of keeping Original Equipment Manufacturers from switching orders to a chip that, on the merits, they may prefer to purchase from AMD.”

The AAI called for the U.S. government to “reclaim its traditional role as the leading antitrust enforcer,” especially in a case that involves two U.S. corporations and is causing concern to the rest of the industrialized world.

In the flurry of news leading up to the U.S. Court of Appeal’s August 23 refusal to block Whole Foods Market’s acquisition of Wild Oats Markets, Inc., the AAI’s amicus brief for a stay pending the FTC’s appeal might have gone largely unreported.

The amicus brief, filed on August 23, argued that the federal district court erred in (1) failing to evaluate whether traditional supermarkets constrain premium natural and organic foods supermarkets, (2) elevating theory over fact by ignoring contemporaneous business documents demonstrating the anticompetitive purpose of the merger, and (3) considering the impact of the merger solely on “marginal consumers.”

In addition, the brief asserted that the benefits of a stay far outweighed “any theoretical harm from delaying this merger.”

Evidence of Anticompetitive Intent

Perhaps most interesting was the discussion of whether the court ignored business documents in which John Mackey, Whole Foods’ founder and CEO, expressed a desire to acquire Whole Foods in order to avoid “nasty price wars” in several cities and to “eliminate forever the possibility of Kroger, Super Value, or Safeway using their brand equity to launch a competition national natural/organic food chain to rival us.”

According the amicus brief, “[t]here were no procompetitive reasons articulated by Whole Foods for the acquisition and inexplicably, the court below never addresses this admission of anticompetitive intent.”

“Economic testimony is relevant but it cannot trump marketplace realities,” the brief concluded.

The amicus brief was written by David Balto and filed on behalf of the American Antitrust Institute, the Consumer Federation of America, and the Organization for Competitive Markets. Text of the brief appears on the AAI website.